The electronics industry -- deeply dependent on rare earth elements -- had little recourse thus far other than to try to minimize use in their products. After China cut exports of the 17 prized scarce elements in 2010 by 40 percent, the decision wrought ripples of financial chaos upon manufacturers of everything from flat screen TVs to hybrid cars in the U.S., Europe, Japan, and South Korea.

The problem is driven by the fact that China bought up rights to many of the planet's most rich rare earth deposits in the 1990s and began actively developing. To make matters worse, it take 5 or more years to bring a rare earth mining facility online -- perhaps as long as a decade to reach full production. China foresight has become America's frustration

However, the situation may be headed to the breaking point as the U.S., European Union, and Japan have filed a formal World Trade Organization complaint against China, accusing it of hoarding the vital resource.

President Barack Obama (D), who supervised the filing, had harsh words for China in a speech, commenting, "We have got to take control of our energy future and we can't let that energy industry take root in some other country because they were allowed to break the rules."

In a joint statement, EU Trade Commissioner Karel De Gucht, jabbed, "China’s restrictions on rare earths and other products violate international trade rules and must be removed. These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications."

II. China Already Has Lost Once This Year Before the WTO

WTO complaints operate something similar intellectual property complaints, albeit on an international sale. Nations have 60 days to come to a compromise or the matter is passed to arbiters on a WTO settlement board.

The board's resolutions are fairly binding, but can take years to resolve. A series of complaints filed by the U.S., Mexico, and EU against China was finally ruled upon this year. The board ruled in that China had acted improperly in fixing supplies of nine raw materials, including zinc, coke (coal byproduct), and magnesium at artificial lows. The WTO rulings carry serious financial weight, and China has reportedly been relaxing resource supplies since the February ruling was made against it.

However, when it comes to rare earths China is loathe to relax supplies as it's coming to enjoy selling less of the product for the same amount of money, while funneling its extra stockpile to domestic firms.

III. China Accuses Westerners of Promoting Pollution

China's Ministry of Commerce (MOC) rebutted the rhetoric of President Obama and Commissioner De Gucht, in a written statement claiming that raising exports would harm the environment. China, a notorious polluter who bats nary an eyelash at its citizens laboring in toxic scrapyards suddenly "found religion", environmentally speaking, when the crisis hits.

Writes the MOC:

Previously, China has been in constant communication and contact with related countries about its export policy on raw material products, and has emphasized repeatedly that the policy aims to protect resources and the environment, and realize sustainable development. China will properly deal with the request for dispute settlement in accordance with the WTO's settlement procedures.

China Minister of Industry and Information Technology Miao Wei told local news service Xinhua that he felt "pity" for the Americans, stating, "We would feel sorry for their decision to complain to the WTO."

Chinese IIT administrator Miao Wei says he "feels sorry" for America's efforts, which he says China will crush in court. He accuses the U.S. and its allies of promoting pollution. [Image Source: China.org.cn]

He says China will fight hard to prevent any sort of mandatory increase in exports.

China has filed 5 complaints against the U.S. before the WTO, while the U.S. has filed 12 against China. Likewise China filed two complaints against the EU, who has filed 5 complaints against it.

IV. China a Heated Political Issue this Election Cycle

President Obama claims to be actively working to protect the U.S. against Chinese economic malice. In February he created a new "Trade Enforcement Unit", tasked with policing China and retaliating against unfair policies. He claims his administration has filed twice as many trade complaints as the administration of former President George W. Bush (R).

However, he has drawn criticism for some for not cutting back on America's subsidy system, which is accused of in effect gifting tax rebates to companies that ship their manufacturing jobs to China. Critics also say he should be more critical of China's currency manipulation, which had placed American exports at a disadvantage.

Leading Republican presidential hopeful Mitt Romney promises that if he were elected, that on his first day of office he would name China a "currency manipulator". While the move would disrupt a great deal of U.S. production, possibly impacting the supply chain of Apple, Inc. (AAPL) and others, he says that the consequences are better than allowing China to "steal" American business.

Former Mass. governor and Republican presidential hopeful Mitt Romney accuses President Obama of allowing China to steal U.S. jobs. He says he would declare China a "currency manipulator" and move to cut the U.S. trade with its biggest manufacturing partner.
[Image Source: AP]

Campaigning in Ohio he accused President Obama of casting a blind eye on the currency manipulation and intellectual property theft, allowing China to "walk all over him".

Alan Tonelson, a research fellow at the U.S. Business and Industry Council, a group that represents U.S. manufacturers, agrees, complaining, "Unless President Obama starts fighting back effectively against these transgressions, China’s market-rigging will keep stealing hundreds of thousands of valuable jobs and untold billions of dollars’ worth of growth that the struggling U.S. economy needs right now."

On what basis does the author claim that China has a rare earth monopoly? It produces around 97% of the current world supply now but if prices rise it will simply make sense to then mine known resources of rare earth metals in the USA, Russia, South America, India etc.

No, the problem is that no business in these other companies is willing to invest any money in opening new mines because they know that as soon as they get up and running, China will simply dump its stockpiled supply onto the market, driving down prices and putting the new mine out of business. Then, once the new mine is out of business, China goes back to stockpiling. China's huge advantage here is its massive headstart and stockpiled supply.

quote: You think for a second the Obama Administration and his ECO-Freak friends would allow such mines to "open" and time soon?

Can you define the term "ECO-freak" please? Does it mean people that aren't willing to die from diseases caused by wallowing in their own filth due to industry/government corruption?

quote: They are still whining about fracking!

I haven't heard anyone whine about fracking but have heard concerns about ground water destruction and other environmental destruction due to fracking. Fracking can be done safely but exempting energy companies from clean water laws and other laws that safeguard the environment is not a way to get that done.

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Fracking safely and responsiblyEnvironmentalists and the energy industry appear to be edging towards a consensus that would permit a big expansion in hydraulic fracturing for oil and gas in exchange for stricter rules on engineering procedures such as well casing and cementing.In a thoughtful article in the “Wall Street Journal”, Russell Gold explains how energy officials and some environmental campaigners are converging on the view that poor well construction, rather than fracking itself, has been responsible for recorded instances of groundwater contamination (“Faulty Wells, Not Fracking, Blamed for Water Pollution”, March 12).

quote: Does it mean people that aren't willing to die from diseases caused by wallowing in their own filth due to industry/government corruption?

That's not their objective, as these same people protest Generation III/IV nuclear power and even the occasional solar or wind plant. Gotta protect them critters in the desert, after all.

Nah, they're anti-development, plain and simple. All that "filth" is part of an advanced society thats lead to more people being more educated and living with more advanced tools and access to information then any time prior to the industrial revolution and all that "filth," and pretty much any economic activity past getting out of bed in the morning can be linked, with enough trouble, to some "filth."

quote: That's not their objective, as these same people protest Generation III/IV nuclear power and even the occasional solar or wind plant. Gotta protect them critters in the desert, after all. Nah, they're anti-development, plain and simple. All

Frankly that's about the most slanted, simplistic, inaccurate and juvenile thing I've heard in a long time. I think you need to get out more and meet real people not the cardboard cutouts manufactured by Rush Limbaugh and friends.

Indeed. China was willing to invest in the 90s and now has a cache of rare earth, but this doesn't stop the rest of the world from digging their own mines. You can't complain about the situation when you're not willing to sully your own soil, even though it's clearly available to be unearthed. The only way I'd find these claims reasonable is if China owned the entire Earth.

We've all seen this before. Whenever something happens, no matter where in the world, that reflects badly in some way on our economy or this Administration Obama who was heralded as the great world "unifier", just blasts the other party whether it's deserved or not. And this is the guy who was going to make the rest of the world "love" us. It's hard to love anyone with this level of arrogance, impenitence, and narcissism. Who practically condescends foreign leaders as if they were sniveling students in his class.

Obama, what possible incentive does China have to do things your way and ruin their growing economy the way you've ruined ours? I'm sorry their stronghold on current exploited rare Earths, and your policy of strict environmentalism to the point of suicide, is hurting your goal of having EV's in every driveway and a solar panel on every roof.

If I was China I would have to tell you and the WTO to politely go suck it. All while bowing very deeply and respectfully, of course.

quote: We've all seen this before. Whenever something happens, no matter where in the world, that reflects badly in some way on our economy or this Administration Obama who was heralded as the great world "unifier", just blasts the other party whether it's deserved or not.

What? If China mines those materials then China can do whatever it wants with them. They're not under any requirement to share their resources with us, and they can "hoard" if they want to. What belongs to China belongs to China, until they decide otherwise.

How would you respond if China came to the U.S. with complaints that we're not sharing enough of our uranium, petroleum, natural gas, and coal with the rest of the world? Would you "have a seat at the big-boy table" and cave to their demands, or would you say "screw you, we produced those things and we don't have to share them with anybody"?

So yes, I'm against using threats, coercion, and military might to bully other sovereign nations into parting with their natural resources at a rate that we decide is fair. Bullying is never cool.

The nations who own the resources are entitled to be the final authority on what constitutes "fair" terms of exchange. And if we don't like those terms, then we're free to develop our own resources, locally.

Sounds more like it's time for whiners like Jason Mick to stop pouting like a five-year-old in post upon post on the exact same topic. Extremely unbecoming for who is at least supposed to be an adult person.

Every country manipulates it's own money, the Swiss decided the Swiss Franc should be no more than 0.8 Euro and the Swiss National Bank acted on it, the US and the Japanese do the same when they feel their currency should stronger or weaker.

Ok, I've got the solution to this and every other economic problems that the world is facing today:

Everyone, including Russia, EU, the Americas are to push China for liberalization of their currency. A free-fluctuating currency is a rule that everyone else in the world follows, except for China. This would make the Yuan stronger, increase their purchasing power (which in turn will help make the country more democratic) and halt the chaotic and polluting development of China. It'll make their products more expensive which will bring back manufacturing jobs to originating countries, giving a boost to stagnating economies. Such demand can be pursued through the WTO and it is the quickest solution with the highest impact.

That's quite a matter of perspective.. to Chinese workers seeing their inflation-adjusted or 'real' wages rising reliably by 10 to 30% per year, depending on skills and industry, that's not chaotic, that's China rejoining the rest of the world after a disastrous failed marriage with Marxism.

As for pollution, energy consumed per unit of GDP created in China has been falling. What they're going through is part of growing an industrial, then post-industrial, country.. albeit at a much quicker rate since the West blazed the trail for them, technology wise.

Thats not to say that can't do better, and the government there is making attempts to build cleaner power plants, but against the backdrop of continuing a run of success that's lifted more people out of poverty then anything before in history.

My 2 cents: The West has its own wounds to tend to without casting stones around the globe. Furthermore, the rest of the world can throw stones right back..

With US slipping deeper and deeper into socialism, this is just a repeat from history. China is the new US with a proper capitalist economy which is not weighed down by millions of federal parasites and which isn't mass-subsidizing the lazy and inept.

Don't listen to the old crap mantra that China is a communist country. It may be by name, but is far more capitalist than US or any EU country. And you can see the results in growth for yourself.

quote: President Barack Obama (D), who supervised the filing, had harsh words for China in a speech, commenting, "We have got to take control of our energy future and we can't let that energy industry take root in some other country because they were allowed to break the rules." President Obama President Obama claims China is "breaking the rules" by manipulating trade supply.

In a joint statement, EU Trade Commissioner Karel De Gucht, jabbed, "China’s restrictions on rare earths and other products violate international trade rules and must be removed. These measures hurt our producers and consumers in the EU and across the world, including manufacturers of pioneering hi-tech and ‘green’ business applications."

So what would happen if China decided to outlaw the mining of these materials on their soil? Would the WTO step in and force them to continue to mine? Just because the rare earth metals are vital to the economy of other nations does not obligate China to provide them.

I have to hand it to China though, they played the gamble of securing the resources and now they have the upper hand, if other countries had been willing to make the gamble then we would not be in this situation.

Partnering with and trusting the Chinese government is a dangerous proposition. While the Chinese do have every right to do what they want with the rare earths they mine in their country, the reality is the US and other countries better wake up to what happens when the CCP has control. If they don't make the appropriate adjustments, they/we are going get squeezed six ways to Sunday. Time to jack up the duties and tariffs on those food exports...two can play that game.

If I understand correctly rare earth elements can be exported as finished products. The Chinese quotas are distorting prices both internally and externally - prices in China are held down and prices elsewhere are inflated.

All you need to do is create exotic cutlery that is so poorly crafted that anyone dumb enough to buy it would almost be forced to melt down the flatware into a more productive product. Due to the price discrepancy you should still be able to turn a healthy profit. Just throw a warning label on the box - "Cutlery is for display purposes only, not intended for actual use." What's the worst that could happen? It's not like you would be poisoning infant formula.

I bet several tech companies would be very interested in purchasing large quantities of this exotic ornamental cutlery.

"I'm an Internet expert too. It's all right to wire the industrial zone only, but there are many problems if other regions of the North are wired." -- North Korean Supreme Commander Kim Jong-il